Making Saving Energy at our Hotel a No Brainer!Posted on March 28, 2012.
Last week we signed a contract with an energy services company that will be re-designing the energy systems at our full service hotel. Hotels use an enormous amount of energy – imagine a laundry department that runs 24/7. The amount of water and electricity to wash, dry and press sheets, towels, blankets, uniforms, and napkins. Early projections show that with the implementation of 4 keys improvements, we can reduce our energy consumption and costs by almost 30% annually. This is real money and for a hotel it falls right to the bottom line. In addition to energy costs, we will also be reducing other operating costs for laundry detergent, light bulbs, and linens.
This is good for everyone – our guests, our environment, and our bottom line!
Here’s why this makes financial sense:
We spend $800,000 on system improvements. We save approximately $240,000 per year in energy and other operating costs. If we hold the property for three years and then sell the it after the third year, the payback is $720,000 in gross operating savings and the property value is increased by the annual savings divided by the sale cap rate. If we use a 9% cap rate, the additional value on the sale would be $2.67 million.
SO FOR AN $800,000 INVESTMENT, THE CASH RETURNED EXCEEDS $3.3 MILLION OVER 4 YEARS WITH AN IRR OF 54%!
It’s the easiest decision I made last week – definitely a no brainer.